The micro loan began to support poverty stricken people, who were unable to prove that they could repay. Using charitable donations, these impoverished individuals could fund their small businesses, and start to create some wealth and income by themselves. Frequently, a high rate of interest is charged, due to the servicing difficulties of these small loans. However, for those who have no alternative option, these loans can be very welcome.
Micro lending schemes have been very successful, and have started to be used on more mainstream projects. A home business start up, with an unproven business plan, or a stay at home mom, who has no collateral and little credit, could both benefit from micro lending. Although micro loans normally mean small amounts overseas (i.e. roughly $100.00 on average), this is a bit different in the US. Usually, banks do not provide loans below $50000.00 for small businesses. However, with micro lending, the majority are from $1000.00 to $15000.00. Obviously, this fluctuates depending on the lender.
While micro loans are easier to acquire than traditional loans, and normally permit lower borrowed amounts, you still have to satisfy a few requirements to qualify for one. This varies depending on whom you borrow from, but here are some of the more common criteria. You must not have filed for bankruptcy recently, you must prove you have a stable income to support the loan repayment, you must have no overdue bills, and you must not have a credit score that is classed as "high risk".
As with all start up businesses, a sound business plan is a prerequisite. This is particularly true whenever you lack the collateral or credit to obtain a standard loan. You will need to prove that you are prepared to use your micro loan to create sufficient income to repay your lender.